Blindsided

On Wednesday evening last week the largest retailer in the world (Walmart) took a direct shot at the core of the largest Internet retailer in the world (Amazon) by drastically reducing prices on the top 200 books sold. The price reduction was a crazy 50% off obviously a loss leader move for Walmart. In press releases Walmart and Amazon have both stated that they will not be undersold in this category and will beat the competitors price which by Friday meant lowering prices by pennies and I think now books that once sold for $20 - $30 are now on sale for $8.99. Great for the consumer right? Maybe or maybe not.

Someone is definitely going to lose this fight and most likely it will be Amazon because they don't have the deep pockets that Walmart does (Walmart can probably give books away for free and still have no significant impact on its balance sheet). This fight is most likely not about books but more about another area of business that Amazon has started in (food, electronics, toys) so the results are likely to be a truce at some point and Amazon quietly backing out of an area that Walmart wants to dominate. This move obviously is not good for the consumers who will ultimately see less competition and higher prices.

What happens to Barnes and Noble, local independent books stores and even writers for that matter. Its going to be a very tough holiday season for book stores while their online competitors (Walmart is only offering this pricing on line) are selling at half what the local stores price is. Some stores will close others will just suffer through it. Barnes and Noble stock price has fallen 15% since last weeks announcement. Writers will likely be paid less advances because the long term margins are being reduced. Amazing the industry changing implications a decision by a few individuals in Arkansas has on the world.

At Signature Community we dealt with this on Sept 15, 2008. When the financials markets went into a tailspin and credit markets froze our industry came to a screeching halt. Deals stopped happening and everything went on hold for more than a year now. The general operating dynamics of our properties really hasn't changed much but the perceived value of our properties has diminished subst antially. Without financing real estate deals don't happen. Or if they do, they are substantially reduced in price. We are dealing with this as an industry and more importantantly as an operating company for the past year and probably for the foreseeable future. We were blindsided just like the book industry.

At Signature Community we have made profitable operations our number one focus. In the Summer we pushed our occupancy rates substantially higher then our competitors and in the fall of 2009 we have beed focused as a company on bringing our property level expense down by 5% which will put us substantially ahead of our competitors. We have garnered hundreds of ideas on cost cutting and efficiency gains at ideas@asignaturecommunity.com. (Please share your ideas today!)

Our industry was blindsided. However, as a company, we are taking advantage of this game changing scenario to make our business better and even grown our brand through acquisitions under a very different financial model.

There are two kinds of companies out there, the ones that stay down after being blindsided and the ones that grow because of it. Signature Community is in the later category and will be growing from the blindside impact.

Thanks for making it happen at Signature Community.
Nick